Axelar: Global Distribution of Offshore Security Tokens Backed by Korean MMFs

1. Global Distribution of Domestic Assets and the Demand for Interoperability

The commercial viability of an offshore security token backed by a domestic MMF is determined by how readily overseas investors can access the product, how investment capital reaches it, and whether it can be managed alongside other financial assets. Securing global liquidity, expanding the range of asset classes, and connecting to overseas distribution channels therefore need to be reflected as core requirements from the earliest stage of structuring the business.

These requirements translate into demand for interoperability infrastructure. Where an investor’s settlement asset, a financial institution’s issuance and servicing systems, and an overseas distribution platform operate on different networks, it is not only the asset that must move between them. The operational information required for subscription, redemption, and ongoing management must also be transmitted consistently across networks.

Axelar provides interoperability infrastructure that can extend the global distribution reach of domestic assets by connecting the separate blockchains on which tokenized assets, investment capital, and overseas distribution channels reside. Deutsche Bank incorporated Axelar-based multichain token issuance into the institutional tokenization design of DAMA 2, and Axelar’s cross-chain connectivity was also used in the joint portfolio management proof-of-concept conducted by J.P. Morgan and Apollo.

2. The Scope of Legal Interpretation 260142

On August 20, 2026, Korea’s Financial Services Commission issued Legal Interpretation 260142, examining a structure in which the securities of an offshore fund holding a domestic MMF are tokenized outside Korea. The determination presumes a set of relationships: that the offshore entity is economically and legally independent of the domestic financial investment business operator, that the security tokens are sold to offshore investors on a private placement basis only, and that resale to Korean residents is fully blocked through both technical and contractual means.

The Commission concluded that offshore issuance of this kind is unlikely to produce effects within Korea and is therefore not subject to the Electronic Securities Act. This is not an interpretation that generally permits the tokenization of domestic financial products. Where resale to Korean residents occurs, or where the domestic financial investment business operator and the offshore entity are effectively assessed as the same party, the determination may differ.

3. Core Business Requirements for an Offshore Distribution Structure

Converting an offshore issuance structure into a commercial business requires the scope of investors, the settlement asset, and the product access channel to be defined concretely. The more readily overseas investors can reach the product through the wallets, custody arrangements, and investment platforms they already use, the wider the issuer’s potential distribution reach becomes. The business value of interoperability infrastructure lies in connecting these dispersed investor access paths with the product’s operating environment.

An asset onboarding strategy also needs to be reflected in the initial structure. Even if an MMF is set as the first product, expanding the product range into bonds or alternative investment funds requires the ability to accommodate issuance and servicing environments that differ by asset. That DAMA 2 covers tokenized funds, stablecoins, and other real-world assets, and that the joint proof-of-concept conducted by J.P. Morgan and Apollo validated portfolio operations spanning multiple ledgers, points toward this direction of expansion.

※ Analysis: these business requirements are derived from the institutional cases and Axelar technical documentation. They do not represent actual adoption of any domestic product.

3.1 Application to the Overseas Distribution of a Domestic MMF

In the transaction structure presumed by the legal interpretation, the domestic financial investment business operator supplies the MMF, and an independent offshore entity acquires that MMF through an offshore fund and then tokenizes the securities of the offshore fund for sale to overseas investors.

At the level of technical implementation, one structure that can be examined is one in which the overseas distribution platform receives the subscription request, and the offshore issuance and servicing system confirms investor eligibility and receipt of funds before executing token issuance. At the redemption stage, the retirement and burning of tokens, the redemption of the offshore fund, and the payment of investment proceeds need to be linked. Where investment capital and product servicing systems sit on different networks, the structure requires the ability to transmit requests, approvals, and processing results alongside the movement of assets.

The operational flow described above is an application model derived from global institutional cases. Foreign exchange, custody, the payment of proceeds, and the definitive record of securities entitlements must be designed separately in accordance with the contractual and operational framework of the product in question. Interoperability infrastructure can contribute to widening global distribution reach by connecting that operating framework with the customer base of overseas distributors.

4. The Institutional Tokenization Architecture of DAMA 2

Deutsche Bank’s DAMA 2, or Digital Asset Management Access 2, is an institutional infrastructure project that brings the issuance, servicing, and distribution of tokenized assets into an integrated design. In June 2025, Deutsche Bank released a litepaper together with Memento Blockchain and Interop Labs, then the developer of Axelar Network. The scope of application covers tokenized funds, stablecoins, and other real-world assets.

The published architecture consists of an Ethereum-based layer, an institutional Layer 2 with privacy features, and a user application layer. Memento builds the Layer 2 environment using zkSync’s ZK Chain technology, and Axelar is specified as the interoperability layer supporting managed token issuance across multiple blockchains.

※ The components and their functions are based on Deutsche Bank materials. The final column is analysis applied to the overseas distribution structure of a domestic MMF.

4.1 Implications for the Overseas Distribution of a Domestic MMF

Within DAMA 2, Axelar handles the function of extending institutionally managed tokens across multiple networks. A comparable demand for interoperability may arise where an offshore issuer seeks to widen its overseas distribution channels and investor touchpoints while maintaining a controlled operating environment. That institutional control requirements and global network accessibility can be implemented within the same structure provides a significant implication for the overseas distribution of a domestic MMF.

An approach that connects asset-specific servicing environments, rather than migrating every participating institution onto a single technical environment, is also effective from the perspective of product expansion. This suggests that even where an MMF serves as the initial product, the interoperability structure should be designed in advance with the asset classes to be added later and the overseas distribution channels they will connect to in mind.

5. Multi-Ledger Portfolio Management at J.P. Morgan and Apollo

The 2023 portfolio management proof-of-concept carried out by J.P. Morgan and Apollo as part of MAS Project Guardian is another case of institutional interoperability. The exercise constructed a portfolio using traditional and alternative assets distributed across multiple ledgers, and validated the automatic rebalancing of holdings in response to changes in the investment model.

According to Axelar’s November 2023 announcement, J.P. Morgan Onyx at the time used Axelar’s cross-chain technology to achieve interoperability with the private, permissioned blockchain provided by Provenance. Oasis Pro supported the tokenization of assets including Apollo funds. Axelar was used as the interoperability technology supporting connections between different ledgers in a joint proof-of-concept involving multiple institutions.

※ The content of the exercise and Axelar’s role are based on announcements by the participating firms. The implications are analysis derived from those facts.

5.1 Multi-Asset Onboarding and Servicing Scalability

For an overseas investor, an MMF is both a means of managing cash-equivalent assets and one of the underlying assets that make up an entire portfolio. An offshore issuance and distribution operator seeking to offer multiple asset classes must build not only product-level issuance functions but also an operating environment that links transfers of capital and management instructions across products.

Consider, for example, an investor reducing an MMF allocation and increasing the allocation to another fund. The redemption request for the existing product, confirmation of payment, subscription to the new product, and updating of holdings must be processed in sequence. Where products sit on different ledgers, this requires a connectivity function that transmits the relevant messages across networks and verifies the processing results. This is an analytical illustration applying operational challenges observed in the joint proof-of-concept to the overseas distribution structure of a domestic MMF.

If DAMA 2 presented an architecture connecting an institution’s issuance and servicing environment to multiple blockchains, the J.P. Morgan and Apollo exercise validated the operation of a multi-asset portfolio built on that connectivity. Together, the two cases show that Axelar can be used as infrastructure that connects both the movement of tokens and the financial operating procedures around them.

6. Overseas Distribution of a Domestic MMF and Interoperability Infrastructure

6.1 The Regulatory Starting Point in the Korean Market

Legal Interpretation 260142 presented a determination that, under certain conditions, the Electronic Securities Act does not apply to a structure in which the securities of an offshore fund holding a domestic MMF are tokenized outside Korea. This does not generally permit the tokenization of domestic financial products. It means that, within the specific set of facts consisting of an independent offshore issuer, private placement to overseas investors, and blocked resale to Korean residents, a regulatory starting point has been established from which an offshore distribution structure can be examined.

The core of commercialization, however, is not limited to whether offshore tokens can be issued. A sustainable distribution base is formed only when overseas investors can access the product through the custody arrangements, wallets, and investment platforms they already use, commit investment capital to it, and redeem it or manage it alongside other assets as needed. The focus of examination accordingly needs to widen from whether the issuance structure holds to the connection of global liquidity, asset onboarding, and overseas distribution channels.

6.2 Infrastructure Required to Widen Overseas Distribution

Where an overseas investor’s settlement asset, the offshore issuance and servicing system, and the global distribution platform operate on different blockchains, it is difficult to compose the entire transaction process through asset transfer functions alone. Subscription and redemption requests, the results of investor eligibility checks, issuance and burn instructions, and processing status must be transmitted consistently across networks, and connectivity with the existing operating environment must be maintained when new products or distribution channels are added.

At the same time, investor qualification and transfer restrictions must apply identically across every distribution route, and issued, burned, and held quantities must be reconcilable across networks on an ongoing basis. Investor screening, management of legal entitlements, distribution licensing, and foreign exchange and redemption procedures remain the responsibility of the issuing, distributing, and servicing parties. Interoperability infrastructure does not replace this structure of responsibility. It functions as a technical layer that connects the networks and operational procedures used by each participant into a consistent distribution structure.

6.3 Where Axelar Can Contribute

Axelar’s technical components address this demand for connectivity. Interchain Token Service supports the multichain issuance and movement of tokens, and General Message Passing enables subscription, redemption, and management instructions to be transmitted across networks. Interchain Amplifier provides a means of connecting the blockchains used by new assets or overseas distribution channels to the Axelar network.

The institutional applicability of these functions is also confirmed in global references. Deutsche Bank specified Axelar in DAMA 2 as infrastructure for managed token issuance across multiple blockchains, and in the J.P. Morgan and Apollo Project Guardian proof-of-concept, Axelar’s technology was used in the process of connecting assets on different ledgers to construct and rebalance a portfolio.

As the overseas tokenized distribution of Korean financial assets, including domestic MMFs, expands, the strategic importance of Axelar in connecting controlled institutional operating environments with the global blockchain ecosystem is expected to grow accordingly.

7. Scope of Sources and Interpretation

This article is market and business structure research introducing potential applications of Axelar. The institutional cases and technical functions are based on publicly available materials, while the application examples and outlook for the overseas distribution structure of a domestic MMF are analysis built on that basis. The content of Legal Interpretation 260142 is summarized on the basis of the publicly available commentary on the reply by Bae, Kim & Lee LLC. This article is not intended as legal advice on any specific product or as investment solicitation.

Key Source

Bae, Kim & Lee LLC - Offshore Structures for Security Token Issuance and the Scope of the Electronic Securities Act

Deutsche Bank - Next phase of Project DAMA unveils institutional blueprint for digital asset servicing

Axelar Network - J.P. Morgan & Apollo Deliver “Project Guardian” With Help from Axelar & Others

Axelar Docs - Token Managers — Interchain Token Service

Axelar Docs - General Message Passing

Axelar Docs - Getting Started with Chain Integration — Interchain Amplifier

Axelar Network - How Interchain Amplifier’s Decentralized Governance Works for New Blockchain Connections

Deutsche Bank - DAMA 2 litepaper – institutional blueprint for asset tokenisation and servicing on Ethereum layer 2

Disclaimer

The contents of this report are for informational purposes only and do not constitute a recommendation or basis for legal, business, investment, or tax advice under any circumstances. References to specific assets or securities are for informational purposes only and do not represent an offer, solicitation, or recommendation to invest. The final responsibility for any investment decisions lies solely with the investor, and this report should not be used as a guideline for accounting or legal judgment.

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